Tesco Joins AT&T Selling Euro Bonds as Borrowing Costs Decline

Tesco Plc (TSCO), the U.K.’s biggest grocer,
and AT&T Inc. (T), the largest U.S. telephone company, are selling
bonds in euros as borrowing costs approach the lowest in 4 1/2
months in Europe.

It’s Tesco’s first sale of notes in the currency since
2011, while AT&T joins a surge of U.S. companies selling the
most debt in Europe in six months, according to data compiled by
Bloomberg.

U.K. services growth unexpectedly accelerated in October to
the fastest in 16 years, indicating continued strength in the
economic recovery at the start of the fourth quarter. Borrowing
costs may start to increase next year when the Federal Reserve
reduces its stimulus program, which economists forecast will
happen in March.

“Yields are still attractive on a historical level so
companies are making the most of it,” said Nick Burns, a credit
strategist at Deutsche Bank AG in London. “Companies may also
be aware that while consensus doesn’t expect tapering before
March, at some point it will come back on the radar and cause
yields to rise. It could be the perfect combination of factors
to issue debt now.”

The average yield on investment-grade bonds is at 1.8
percent, near the lowest since June 17, Bloomberg bond index
data show. The cost of insuring the debt against losses is
holding near a 3 1/2-year low, with the Markit iTraxx Europe
index little changed at 83 basis points at 11:30 a.m. in London.

Tesco Bonds

Tesco is marketing 500 million euros ($675 million) of
seven-year notes to yield 68 basis points more than the mid-swap
rate. The Cheshunt, England-based company is also selling 500
million euros of four-year notes with a spread of 45 basis
points, according to a person familiar with the matter.

“Market conditions are supportive and this is an opportune
time for us to refinance debt that is maturing early next
year,” Tom Hoskin, a spokesman for Tesco in Cheshunt, said by
e-mail. The retailer has 600 million pounds ($963 million) of
bonds coming due in February 2014, according to data compiled by
Bloomberg.

AT&T is offering 1 billion euros of bonds due December 2021
to yield 95 basis points more than the swap rate. It’s also
marketing 1 billion euros of 12-year notes with a spread of 130
basis points, a person with knowledge of that transaction said.

The Dallas-based company will use the proceeds for general
corporate purposes and to help fund a debt buyback, said the
person. AT&T said in a statement today it is offering to buy
back as much as $4 billion of bonds.

Sarah Lubman, an external spokeswoman for AT&T based in New
York, didn’t respond to an e-mail seeking comment sent outside
office hours.

Also in the European market today, French carmaker Renault
SA (RNO) is adding 250 million euros to 300 million euros to its 3.625
percent bonds due September 2018 while France’s postal service,
La Poste SA, is adding 250 million euros to its 2.75 percent
bonds maturing in November 2024, according to people familiar
with the deals.